Dollar weakness to drive up sales for Cemex

09 December 2004

A wobbling dollar means more solid sales for Mexico’s Cemex as currency appreciations in its operations from Barcelona to Bogota are seen translating into higher greenback revenues.

Analysts say dollar weakness against the euro is beefing up Cemex’s top-line growth from its Spanish unit during the fourth quarter. The Mexican peso’s strength is also expected to boost revenues, almost certainly to record levels.

And currencies are up even in countries such as Colombia, Cemex’s No. 5 market.

"All operations outside the United States are going to have a favorable impact," said Vector analyst Carlos Hermosillo.

"In general, foreign exchange rates are going to help a lot in this quarter," said Gonzalo Fernandez, analyst with Santander. "The stronger the euro, all the more dollar revenues Cemex is going to have."

To date in the quarter, Mexico’s currency has gained close to 2 per cent against the greenback. Mexico brings in 36 per cent of Cemex’s global revenues. And the euro is up 7.7 per cent, with sales from Spain 16 per cent of total revenues.

Cemex’s sales in the United States, its second largest market providing 25 per cent of global revenues, are seen as neutral given the dollar’s weakness, although dollar revenues from the United States are seen rising on more sales volume.

Analysts said it was premature to estimate by how much Cemex’s revenues will rise in the quarter, because exchange rates could move again by the year’s end. But the analysts were almost certain revenues would be above the third quarter’s record of $2.047 billion.

Analysts expect Cemex to increase free cash flows and reduce its net debt in the quarter.

Also, the dollar’s weakness and the euro’s strength could not have come at a better time for Cemex’s recently announced acquisition of Britain’s RMC Group for UK£2.3bn.

In buying the world’s biggest maker of ready-mixed concrete operating in 22 countries, Cemex locked in a fixed exchange rate of 1.795 dollars per pound by hedging, making the acquisition (minus debt) worth $4.2bn.

Had Cemex not hedged its financing to buy RMC, at current exchange rates it would be shelling out another $340m for RMC because of dollar weakness against the British pound, analysts said.